Excerpted from AngloInfoBlog
Posted on September 21, 2017
by Virginia La Torre Jeker J.D.
My heart fell when I saw this tweet this morning, though I told myself it likely won’t affect any “minnows.” Haven’t we had more than our “fair share” of bad news? Will there never be an end to this perverse & persistent notion that #AmericansAbroad, #AccidentalAmericans et al are automatically guilty of tax evasion?
RS CID Chief: “Significant” International Tax Investigations Under Way
Updates on IRS "Offshore"https://t.co/3LqygkZfkx pic.twitter.com/TE1RohN6rz
— V. La Torre Jeker JD (@VLJeker) September 21, 2017
So the IRS is forming a new International Tax Enforcement Group in Washington DC.The group will be comprised of IRS personnel in DC as well as IRS agents from other IRS locations around the nation, personnel from the Justice Department’s Tax Division as well as international partners.
International partners? What does this mean? Presuming solicitor client privilege will rule out tax lawyers, will accountants be expected to “turn” on their clients? Or does it refer to further involvement of foreign tax agencies? Will privacy of taxpayer information simply disappear completely?
We know that the IRS has a tremendous volume of raw data about US taxpayers and their foreign financial assets. This has been obtained from various sources, including the Offshore Voluntary Disclosure Programs which, in one form or another, have now been running for 8 years. Since 2009 with the inception of the first IRS Offshore Voluntary Disclosure Program (OVDP), numerous taxpayers have provided detailed information to the IRS which has been steadily fed into its E –Trak System. More data was obtained via the Swiss Bank Non-prosecution Program, various whistleblowers and investigative journalist leaks, and more recently from data supplied by foreign governments and foreign financial institutions pursuant to the “Foreign Account Tax Compliance Act” (FATCA). It is planned that this new International Tax Enforcement Group will be more efficiently mining this data and Ford believes that this could result in tax investigations in “other countries” and “other jurisdictions” that have as yet, not been in the IRS criminal crosshairs.
Perhaps this is the “big” moment we’ve waited for from the beginning. A huge (re)action on the part of the IRS that will bring expats together in new ways to fight back? Will we finally see some financial support from people who can truly afford to do so? Civil disobedience? I have often wondered why any of us would worry about info gathered from the Swiss bank program, whistleblowers, the Panama Papers, etc. This would appear to apply only to those with far more money in foreign accounts than any of us have. And good gawd what other countries & jurisdictions ?
But the little nagging bit is the last item – from FATCA. No one save the IRS & the foreign tax agencies know what information has been turned over. And the banks have not adhered to the lower thresholds because the IGA’s allow them to do so. There will probably be many, many mistakes which will cost a lot of grief, time and money when no income tax is even owed.
Here’s the other little gem in the announcement:
One of the campaigns involves “OVDP Declines and Withdrawals”; its focus is on OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. They are now the subject of more intense IRS scrutiny for audit. I know of many frightened taxpayers often telling the same sad story – it usually went something like this — their tax return preparer (or other advisor) convinced them to enter OVDP. However, upon fully understanding the facts of their case, it was determined that entry into OVDP was a clear case of “overkill” and was unwarranted. Some of these individuals successfully withdrew from OVDP and obtained tax compliance perhaps through a penalty-free IRS Streamlined initiative. Now, these individuals may be targeted under this latest IRS “campaign”. How lovely!
This stinks. It has that same aroma of FAQ 35.
From form 14653 (required for Streamlined Foreign)
I acknowledge the possibility that amended income tax returns I am submitting under the Streamlined Domestic Offshore Procedures may report income for tax years beyond the three-year assessment limitations period under I.R.C. § 6501(a). Other assessment limitations periods in I.R.C. § 6501 may allow the Internal Revenue Service to assess and collect tax. If I seek a refund for any tax or interest paid for the omitted income that I am reporting on my amended income tax returns because I feel that my payments were made beyond the assessment limitations period, I understand that I will forfeit the favorable terms of the Streamlined Procedures.
I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.
If one has managed to obtain “reasonable cause” via the IRS Form 14653, (a very detailed 5 page form), filed Streamlined, paid applicable tax etc, why would having opted-out of OVDP automatically invite suspicion? This sounds a lot like this delightful little tidbit; according to the Taxpayer Advocate, the agency assumes individuals with offshore accounts are suspect of fraudulent activity. Or what about if one had already renounced, assuming there were no further issues with IRS and then comes this?
To cheer u, IRS Lost Yesterday on #Willful #FBAR penalty https://t.co/UCYgaq9YLM Will try to blog on this soon
— V. La Torre Jeker JD (@VLJeker) September 21, 2017
Bedrosian v United States of America, Department of the Treasury & the IRS
US District Court for the Eastern District of Pennsylvania
September 20, 2017
Mr. Bedrosian was seeking a refund of $9,757.89 paid when he was found to be “willful”in failing to report a 2nd Swiss account on his 2007 FBAR; the government counterclaimed for the entire amount of the penalty of $1,007,345.48. !!!
The Court had posed 2 questions to the parties:
- 1) Does any precedent exist for finding willfulness based on conduct similar to Bedrosian
- 2) Did the government sustain its burden of proof regarding the calculation of the penalty amount
I won’t try to summarize the court’s discussion of all the factors it weighed to determine (non) willfulness. Frankly, I never can follow all the ins-and-outs of the legal process. The court concluded:
“Although we apply the lower, civil standard of willfulness here, we nevertheless do not see Bedrosian’s as the sort of conduct intended by Congress or the IRS to constitute a willful violation. Because we find the government failed to meet its burden as to the requirement of willfulness, we decline to engage in an analysis concerning the calculation of the penalty amount.”
In addition, the court ruled that the $9,757.89 was illegally extracted from Bedrosian and that the government owes him that sum.
After the recent depressing cases of Pomerantz and Dewees, this ruling does indeed, give one reason to smile. The IRS can be beat!
“Because those 7.1 million have no US indicia in their passports.”
I’ve got US indicia in my passport, but it’s not a problem because Canadian banks don’t look at passports. Or birth certificates or anything else.
Just answer the question with a polite “no” and the problem goes away.
I don’t want to stoop to criminality either, @JapanT, but what the United States is doing is CRIMINAL and frankly the entire world is letting them get away with it.
True, but do you have any idea of the conditions in a Japanese prison?
Not something to write home to Mom about.
@Animal
Not a picnic.
@All
For those who advocate lying and commiting fraud, keep in mind that those who would do so would be violating the laws of the countries they reside in, they country from whom we need protection from.
I’ve never been able to get a straight answer on what exactly would be the consequences of a Canadian citizen living in Canada being caught lying about their US citizenship when asked by a Canadian bank. Sure, somewhere in the fine print you’ve claimed to be telling the truth. But does not doing so actually constitute fraud? Certainly a bank could try to sue you if it found out, but if there was no damage done, how was the bank harmed? More likely they just close the account and everyone agrees to keep quiet.
The babk might well do just that, for making it public knowledge could hurt them big time. FATCA requres banks to report ALL US persons, not just the ones that answer honestly. By lying, one could be putting their bank at risk of the 30% fee.
The fee is waived due to the IGA which assumes compliance on the part of the FI. If the FI is found to not be complying, then what?
But beyond that, what does Candian law say about obtaining services under false pretexts? If it just a small fine and a ‘Don’t do that again.” statement, might not be bad, except that you’ve bern publicly outed as a US person. Still, might give one more time as a free person.
I think this is a side of the issue that few are looking at.
Put a different way, does Canadian law on financial fraud make for allowances based upon what one lies about or is a lie, a lie is a lie, regardless of what it is about?
I was told, probably by Metro Toronto Police, that fraud involves taking something and unjustly depriving the victim of the thing. Tricking a person into working for a bankrupt company is not fraud. Though when I think about it now, I bet they wouldn’t say the same if the victim is a hotel (not taking anything but staying there without paying) or a tradesperson (tricking a person with some designated profession into working without paying).
As far as I can tell, District of Columbia code defines fraud in a similar manner, and has separate sections for defrauding an innkeeper or an insurance company, but I don’t recall anything about tricking a bank into opening an account as long as you don’t take a thing from the bank.
I doubt that a false certification for FATCA (or CRS) would constitute fraud.
Interestingly, the Australian FATCA implementing legislation says nothing about penalties for false self-certification, but the CRS implementing legislation does. Since the banks use the same self-certification for both, and since Australia has instructed the banks to treat US Persons as US tax residents for CRS, only the one penalty provision is needed. Under section 396-135 of the TAXATION ADMINISTRATION ACT 1953, a false or misleading self-certification can lead to an administrative penalty under section 284-75 of the same act. The penalty amount will depend on whether the false statement was due to carelessness or intentional disregard of the rules. It can range from A$4,200 to A$12,600 and is indexed for inflation.
In order to apply these penalties, the ATO would have to become aware of the false self-certification – and I’m not sure how that would happen for a US Person who is taxed as a resident in Australia.
That is interesting. We often hear in the news of people being charged or sentenced for bank fraud. Is the crime not defrauding the bank but using banks to defraud someone else then?
My understanding was that as there are legal obligations placed upon banks to know their customers, that lying to the banks puts the bank in legal jeopardy, thus giving rise to the person making the false claim committing a crime.
Someone in Europe, working in the financial industry warned of this, perhaps not with the argument I made but did say there could be legal repercussions for lying to one’s bank about connections to the US. Think they were commenting on a FATCA article in the Hill.
Surely a typical bank fraud involves taking money from a bank.
If lying to a bank would put them at risk of the 30% witholding, would this not apply. Perhaps, attempted bank fraud then?
Karen –
“the Australian FATCA implementing legislation says nothing about penalties for false self-certification, but the CRS implementing legislation does. Since the banks use the same self-certification for both, and since Australia has instructed the banks to treat US Persons as US tax residents for CRS, only the one penalty provision is needed.”
Does the Australian legislation define “US Persons”?
A CLN, even a genuine CLN, doesn’t prove a person is not US-tax-resident. There doesn’t appear to be any way a person born in the US can prove non-US-tax-residency.
Found the two comments, by the same poster, I was looking for.
“Not exactly. It is easy to hide 1.) Perhaps, if there is no prior record that you are a US citizen until that information becomes known by deduction, through knowledge of birthplace or parental citizenship for instance 2.) If you are willing to lie about the fact that you are a US person (in the fiscal sense of the term), such as on bank opening forms when asked if you’re a US citizen. Having worked in the financial industry I can assure you it catches up with you sooner or later, and that day you find yourself in big trouble 1.) vs US tax authorities 2.) vs the authorities of the jurisdiction you lied to.
The account opening documentation is one thing. Know your customer (KYC) practices is another. Banks, especially private banking, are run by compliance and relationship managers are under great pressure to gather as much information as possible regarding their clients. Indeed, it is a professional and ethical obligation to do so. This goes way beyond the scope of ticking boxes in a set of account opening documents. Experienced bankers are good at asking the right questions to get the information they want and will pick up very easily when a client becomes reticent and / or evasive in answering seemingly benign questions. I would caution anybody who considers themselves safe to any degree from FATCA, especially if they have lied about their status.”
They do not, however give the mechanism for the big trouble with local authorities.
“A CLN, even a genuine CLN, doesn’t prove a person is not US-tax-resident. There doesn’t appear to be any way a person born in the US can prove non-US-tax-residency.”
Lovely.
Would a potential penalty have to be withing either the FATCA or CRS legislation? Are there no other penalties for such action for an Australian w/o any US indicia lying to an Australian bank?
“A CLN, even a genuine CLN, doesn’t prove a person is not US-tax-resident. There doesn’t appear to be any way a person born in the US can prove non-US-tax-residency.”
Perhaps this little nugget was what lead me to believe that undertaking the herculean effort to gain J citizenship and renounce cleanly and get my CLN was not a worth while endevour, though I feel there was more to it.
The US doesn’t stamp passports on exit, so anyone who has a US entry stamp in their passport might be unable to prove that they’re not US tax-resident.
How about the entry stamp of the nation we live in?
Plaxy,
For FATCA, the IGA defines who must be reported and a CLN is listed as “curing” indicia of US citizenship.
For CRS, an account holder is required to self-certify the jurisdictions where they are tax resident, though the FI is supposed to also use any information they might have to determine whether the self-certification is reasonable. In the ATO guidance it specifically states
Because Australia is using the “wider approach” to CRS – US tax-residents will be included in the CRS reports to the ATO as well as the FATCA reports. As the US has not signed on to CRS, the ATO will not forward the CRS data to the IRS. For more about the interaction of FATCA and CRS in Australia – see this blog post: http://fixthetaxtreaty.org/2017/05/01/crs-coming-soon-to-a-bank-near-you/
For those who have a CLN and are NOT US tax residents, the CLN should be sufficient to remove them from both the FATCA and CRS reports. I haven’t opened a new reportable account since FATCA became effective here. AFAIK none of my banks has identified me as a potential US Person, and I have not been asked to self-certify my tax residence (which is solely in Australia now). I’m about to be added as a signatory on the account of a non-profit organisation that banks with a bank that I have not used previously – I’m interested to see what documentation they will require.
“For FATCA, the IGA defines who must be reported and a CLN is listed as “curing” indicia of US citizenship.”
Good to know. But one need not be a USC to be a tax resident.
“For those who have a CLN and are NOT US tax residents, the CLN should be sufficient to remove them from both the FATCA and CRS reports.”
The implementation in my country does not require the banks to apply the curing process. Does Australia?
“I haven’t opened a new reportable account since FATCA became effective here. AFAIK none of my banks has identified me as a potential US Person, and I have not been asked to self-certify my tax residence (which is solely in Australia now). I’m about to be added as a signatory on the account of a non-profit organisation that banks with a bank that I have not used previously – I’m interested to see what documentation they will require.”
Here, it appears that some banks will accept the CLN, while others don’t. One bank opted not to apply the curing procedure, and positively avoided looking at my (genuine) CLN.
A weakness in the intended snare.
How is that a weakness? The individual is forced to prove a negative.